Investors may breathe a sigh of relief as prices stabilized after a route this weekend. But the crypto market seems to suffer from the same aversion to risk that plagues technology stocks and other assets when investors adjust to a confluence of dangers.
Bitcoin crashed overnight from Friday to Saturday, falling more than 20% from $ 57,300 to $ 45,000. Other cryptocurrencies also fell, reducing the value of the market by more than $ 300 billion to a global total of about $ 2.2 trillion.
Bitcoin has since stabilized, even increasing slightly to trade around $ 49,100.
But new fears are haunting the crypto markets, just as they are stocks and other “risk assets”. Among them are concerns about the economic impact of the Omicron variant of Covid-19. The virus could again disrupt supply chains and global travel, delaying a global economic recovery that markets had anticipated in 2022.
Comments from central bank governor Jerome Powell also cause unrest, which withdrew the word “perishable” – the term he and other officials have used to describe inflation – when discussing the state of the economy in congressional testimony.
The Fed chief also said that decision-makers are likely to discuss ending bond purchases a little earlier than previously expected, and potentially stepping down on a mechanism the Fed had used to help the economy cope with the pandemic. This has led to expectations that the Fed may start raising interest rates faster than expected.
Powell’s comments hit technology stocks hard, as they tend to be more sensitive to higher prices than other parts of the stock markets, given that higher prices mean lower discounted present values for future cash flows. The notes also indicate that global liquidity may tighten, increase the cost of borrowing or borrowing costs for financial assets.
The fear was evident in the crypto markets on Friday when more than $ 2 billion in long positions were liquidated across global exchanges, including $ 850 million in Bitcoin futures. Investors can buy futures contracts with relatively small amounts of security, and take positions that enhance their exposure. This use of influence appears to have been washed out, with open interest in Bitcoin futures falling by 70,000 contracts as of Sunday morning, down 18% from levels earlier in the week, according to Fundstrat Global Advisors.
The crash is now rippling through crypto-related stocks, exchange-traded funds and trusts trading on stock markets. Bitcoin mining stocks like
Marathon Digital Holdings (ticker: MARA) and
Riot Blockchain (RIOT) was down 10% in early trading on Monday. The
Grayscale Bitcoin Trust (GBTC) was 10%, as were futures ETFs
ProShares Bitcoin Strategy exchange traded fund
Coin base Global (COIN), the major crypto exchange, was down 3.7%.
What comes next may depend on factors far beyond anyone’s control, including the spread of the Omicron variant, inflation expectations and investor sentiment as the markets take on lower growth estimates and higher interest rates.
Technical analysts, for their part, are not particularly positive.
“This marks a shift in momentum in the medium term, disrupts short-term support and increases the risk of a more long-term correction,” said Katie Stockton, a cryptotechnical analyst at Fairlead Strategies, in an interview. The $ 53,000 range was a much-watched level for Bitcoin prices, she said, and when the market fell below that, it triggered stop-loss sales.
Nicholas Cawley, an analyst at DailyFX, reiterated this sentiment. “A toxic combination of low liquidity, excessive influence and overconfidence led to the weekend’s crash with most cryptographers writing out several weeks’ lowest price as prices went into free fall,” he noted in a comment.
“While the market is flashing a technically oversold signal, it is likely that the market will enter a consolidation phase in the weeks, and perhaps months, before taking its next move,” he said.
Stockton says that the long-term trend for Bitcoin remains intact. The next level of technical support is $ 44,000, she said. If it falls below, prices could be heading back to the upper $ 30,000, she believes. “This is a corrective phase where you want to deal with risk,” she said.
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